Introduction

There has been an uptake of tech incubators/accelerators in the African techosystem™. While I applaud the great work that has been done so far, I am yet to see an incubator on this continent run the way I’d love to do it. Rather than just criticise, I’ll use this post to give my own perspectives and suggestions using an example.

I have to point out that this is merely postulation and in real life, things hardly turn out the way you postulate.

Between the Incubator and the Accelerator.

There seems to bit of confusion between what incubators and accelerators are. My own definition is simple: the incubator takes the idea to product/market fit; the accelerator takes it from product/market fit to where it needs to scale.

I am talking about running an incubator.

Guiding Principles.

The incubator will be pro founder and looking to fund commercial viable businesses.

I am not one of those that ridicule MBAs. But there seems to be a difference between business and tech head founded incubators. My guess is the tech heads are better placed to empathize with a fellow tech head. While pure business heads are guided solely by numbers.

In addition, I see a lot of incubators that view their investor position as being benevolent. They see it like they are doing the entrepreneur a favour. I see it as a partnership at worst and at best, the founders are doing me a favour helping me make money.

In reality, we both need ourselves to make money while solving problems.

The set up.

I like the Y Combinator setup. If I were running an incubator, I’d have a core partnership structure. The partners made up of “specialist generalists” e.g operations, would all have a stake in the incubator and must have contributed to the fund.

I am not a fan of incubators/accelerators that stockpile “mentors”. It ends up confusing people. There are many ways to cook soup. What ends up happening is each mentor in a bid to justify their existence insist their way is the best. Of what use is a mentor that tells you “what that other guy said is good enough”

The partnership will have one primary person that covers an area of expertise. e.g Product, Finance, Technology, Design Legal and Operations. The partnership will not be bigger than 6 people. Of course industry experts will be welcome to play an ad hoc mentoring role but it will be after the startups have been selected.

More on that in my example to come.

Idea Selection

We’ll focus on ideas that are relevant to the continent but applicable globally, generate revenue from the very first user and can scale to millions of dollars in revenue with a team of 20 or less and at worst can survive without follow-on funding even if it does not succeed in scaling.

Founders will be able to apply with their ideas or ours.

Founder Selection

Since we will be focused on incubating, we will be looking for teams that are “complete”. The core tech must be internal and part of the team. Same as the core operations (more on that in my example). They must have proven at some point in their past that they have the resilience and focus to execute a project for a long period of time.

We will also recruit our founders. The best employees are sought out and not waited on to apply for the job. I believe same applies to founders. I see most incubators putting out application forms and waiting for the applications to roll in.

Like the CEO of a startup, I as the promoter of the incubator will use applications but will also spend a lot of time trying to recruit founders. Many of the best people are already doing something else with their time. That does not in anyway mean that those that apply are not good more like there a lot of great people that will not apply.

We’ll look to cap it at 5 teams per set and 2 sets per year.

The Incubation Period

There will be a residential place available for all founders. This may not be a big deal in other climes but here in Lagos, having a place where you have 24 hours light is luxury.

Providing only an office that has the resources is not enough when most of your founders will be spending 4 hours daily commuting and most likely will be operating at 50% capacity during “office hours”.

For the 3-4 months incubation period, every other distraction will be taken care of. At least it will be an offer left for you to take or not depending on circumstance.

Scope and Funding

Once of my biggest criticisms of African incubators is that they do not begin with the end in mind. They have this idea of holding on to the startup from the beginning to IPO. I view the startup funding funnel more like an assembly line. Before starting, it has to be clear who you want to hand over to and pitch those people before you start. After hand off, you move to the next batch.

Y Combinator’s accelerator program ends with them handing over to Venture Capitalists and Seed investors on demo day. Were I to do an incubator, my plan will be to hand over to the accelerators and that means discussing with the likes of YC, TechStars and co before I start to know the type of metrics and growth that will get them interested.

Sometimes, the startup might scale beyond your next planed step. In that case you work and hand them to the VCs. But at worst they have great accelerators to be handed over to.

For the above to work, there has to be a clearly defined time scope. If startups think they can stay forever they will work like they have a cushion. Like strict and loving parents, they have to know the nest is available for just 4 months. That’s it. It would help them have an urgent mindset. It does not mean after 4 months you kick them out in the rain if they are stuck.

Equity and Financing.

Off my head I am looking to spend $25-35k per startup for 10% “founder shares”. $15-20k cash and $10-15k for facilities/operational expenses depending on team size. I think it is fair because we’ll be acting as co founders taking practically the same risks as founders.

For the funding of such a scheme, we’d will be looking to raise about $2 million that will last over 4 classes (5 startusp per class) and 2 years. A fraction of the money (say $100k) would come from the partners, much more(say $400k) from the promoter i.e me and the rest, from strategic Limited Partners. e.g Venture Capital firms and accelerators interested in deal flow and say telco companies interested in not being left behind.

Raising money from external parties is the hardest part. But then, that’s why we have the finance person in the startup :). Also see epilogue.

A Quick Example.

Idea

Funding a startup that wants to build an on-demand platform for building artisans (painters, plumbers, etc). Customers request jobs and the startup gets a trained artisan to do the job and takes a part of the revenue.

Founder Selection

The team would need to have someone that can build the platform but more importantly, a person that has practical industry experience. Say whose parent or self is/was an artisan, or has experience in the industry e.g has worked in a building maintenance company.

If we do not see such a person applying we’ll seek them out. Maybe someone doing such a business on an analogue scale or sweet talk that person out of their building maintenance job where they do all the work but the owner takes all the upside.

I am not saying a founder without such experience cannot learn on the job. I just believe the risks of failure are much higher without practical experience.

Scope

Our work as an incubator is to ensure that at the end of 4 months, there is traction which we’ll define in revenue terms before the class starts.

In the first few days, we will work with the founders to define the scope. e.g focus on painters and painting jobs in Lagos.

As a product person in conjunction with our tech partner (say Ope Obembe), in two weeks, we can work hands on with the technical guy to get the version one of the platform ready. Our operation partner say Mark Essien (top lad) will work with the operational co founder to work on recruiting 5 painters that will execute the first jobs and maybe a strategy for scaling recruitment and training.

Everyone will work hand in hand to get the first set of jobs.

At the end of the incubation period, we would expect that 30-40 painting jobs must have been done with say 8 new jobs a week coming through and growing weekly. Growth is extremely important.

That will be the core focus. That is what we will hand over to be accelerated. If per chance it is moving much faster, then we’ll seek higher level of funding or if sustainable, no funding at all.

It all depends on circumstance.

Mentors

After selection of such a startup, we’ll seek mentors that have experience in the building maintenance space. Say an executive in Berger Paints or someone that has executed on something similar in a different country like Adaora, the co founder of HomeJoy (no, she’s not Igbo) . Such people can be a source of finance or important strategic partnerships later on

This differs from the popular model of pooling mentors for the numbers before knowing if their skills will be relevant to the starups selected. Although someone that has scaled and exited a web hosting company is cool to have around, that experience is most likely irrelevant in the case of building an artisan on demand company.

Conclusion

The above captures the high level of my general idea. While still very theoretical and easier to write than execute, it is the way I’d try to do it if I were doing it.

Epilogue

My retirement plan was always to fund and run an incubator after my first exit. It is so much easier for two reasons, I would have the money to kick-start the process and secondly, I would have the authority and trust when speaking and convincing founders, potential investors, partners and most importantly myself.

But since that is taking much longer, I’ll brain dump my theory until it’s time

PS: Do check out Callbase, one of the products of the startup where I’m co founder.

I read a post that would not be too out of place if it came with the byline of BNP’s Nick Griffin.

The crux of the post is that we should be afraid of the foreigners coming to Nigeria to take it all from the Nigerian tech scene and “forcing them back into the Lagoon” is the way forward.

I suggest you read it

Ideally, it would not have been worrisome but the fact that it was written by a poster boy for the Nigerian internet space and wholly endorsed by Sim Shagaya, CEO of Konga who called it “words of wisdom” makes it so

If people do not state early, their opposition to such xenophobic (irrational fear of foreigners) thinking, it could easily be misconstrued as a true representation of the view of Nigerian tech ecosystem.

Interestingly, Nigerians are particularly known for traveling far places to do business and are usually on the receiving end of “these foreigners are our problem” thinking.

Why the fear of Rocket Internet?

Rocket Internet is an Incubator funded by 3 German brothers, the Samwers. Their business model initially was copying businesses that had gained traction in USA but yet to enter Europe then sell these companies to the original US companies when they are ready to tackle Europe.

Version 2 of their current business model is aggressively building ecommerce verticals in Africa, Middle East and South East Asia. They centralize and reuse technology in Germany and then hire a person to lead the operations execution in the country they are tackling. They sell and leave as quickly as possible

When they come into a market (it is rumored that operation leads on the ground, aka co-founders, are given $1million to check out the market) they move aggressively, hire and quickly spend lots of money (in the local ecosystem) in a very short time.

This of course causes a mini inflation in the local tech scene as they poach staff, cause an increase in the ad buying cost etc, mainly making things much more expensive. No local startup certainly likes it since it makes business unnecessarily more expensive to run

My views on Rocket Internet have evolved over time. Before, I thought they were a net negative to our ecosystem since they play the pure extraction short term game. Meaning, they build solely to sell and when they sell, they take the money out and move to the next area to extract from; leaving a wake of over stretched local startups and questionably self-sufficient businesses.

But that was one dimensional thinking on my part. Rocket internet is majorly responsible for the urgency we have in our local tech system especially in the ecommerce space. Alongside stretched startups, they leave in their wake human capacity trained on their dime a more developed market and of course a new investor holding the bag. I’m certain the local advertizing companies are also not complaining.

A negative remains though. In other successful tech ecosystems, local money is a major part of the tech scene so when there is an exit, the money is poured back to the local economy and it gets bigger. With the Rocket model, nothing like that happens.

How do you solve a problem like Rocket Internet? Protectionism or Xenophobia?

What is worrisome in Jason’s post is the fact that a legitimate problem (the Rocket extraction model is not the best for a fledgling ecosystem) is muddled with the xenophobic “stop the foreigners” solution.

What is bad for the Nigerian ecosystem is the extraction game irrespective of who plays it.

[Side note: Interestingly, Nigerian politicians and to a large extent ‘business men’ are guiltier in playing the extraction game. They take money from Nigeria (usually foreign loans) and go and develop Dubai. At least Rocket is bringing in money before planning to take out their spoils.]

I’m in favour of protectionism to an extent.

Protectionism are laws created to protect local companies from foreign (company) competition especially if the locals are operating at a disadvantage. The value in protecting home companies is based on the assumption that they will employ residents, pay tax and limit capital flight. They more they succeed, the more tax they will pay and more people they will be employed locally. Local companies could be run by New Zealanders for all anyone cares. i.e citizenship of local company owners does not matter.

Hypocritical words

Jason states:

“We are at the cusp of losing the key internet 1.0 verticals to non-indigenous players. This is something which would be dire for the ecosystem at large.”

“My simple thought. Our fathers lost the Telecoms, PayTV and other technologically driven industries to foreigners. Let’s not make the same mistake and lose our internet industry.”

So what exactly is he arguing are we losing?

If he is talking of returns, shouldn’t those who take risk be rewarded? When Konga and IROKO eventually successfully create a massive liquidity event, who would win?

Well, their approximately 100% foreign investors.

Is he talking about losing by building foreign capacity as against building local capacity?

Jason’s Co-founder, first angel investor and IROKO COO Bastian (who runs the company) is ironically, German (same with Rocket’s founders). DealDey (Sim’s previous company) is run by a foreigner. Konga and IROKO have foreigners in leadership positions.

There is no noticeable difference between the citizen structure i.e the citizen composition of the employees of either Sim/Jason’s company and an average Rocket Internet company e.g. EasyTaxi and Jumia (until recently) are Nigerian run.

I have previously written about why we are losing the investment game to foreigners. In summary, there is less risk and turnaround time in investing in traditional tangible opportunities like real estate. Only those who have made money via software can see the internet opportunity. Sadly, they are not much around.

Competition:

The absence of international competition is the reason why Nigerian payments infrastructure has been way behind. Without competition in PayTV, we would have been at the mercy of HiTV that broadcasted premier league matches without sound or halftime commentary. Without competition the customers will lose.

The world is flat and companies can no longer hope to be protected by artificial political borders. From day one, you should build like the biggest player in the world is going to launch in your market tomorrow.

The sole reason Silicon Valley is the outright leader in technology startups globally, is the combination of the concentration of talent brought by the high priority placed on competence irrespective of origin and a lot of money.

What is the way forward?

Asides the xenophobic card, how do local ‘underfunded’ companies compete against the foreigners especially those playing the extraction game?

Ironically, Jason answered this in the beginning of his post referencing the Alibaba movie

“a great company culture, locally focused product development and a fierce belief in your local market can withstand and defeat a massive global competitor”

In addition to the above the government has a role in ensuring local capacity is built. Local businesses are encouraged to operate/employ locally, Yadda.. yadda yadda..

First they came for Rocket Internet, but I did not speak up because I was not German..

Then they came for the Kenyans, but I did not speak up because I was not Kenyan..

PS:

I do not for one second think either Jason or Sim are xenophobic one bit. Jason is even arguably British. But playing the xen? card for short term individual business advantage is VERY detrimental to the general ecosystem at large in the long term.

Make no mistake, I am a very biased man all things equal, if a local company is executing at 70% of their foreign counterpert, I will go with a local. Same with friend vs. non –friend, family vs. non-family. Etc. However, I will not go attacking the other.

Being pro x is cool, being anti y, had better be justified and being foreign is the worst of justifications.

Triple irony is that Alibaba’s major investor was Yahoo! – a foreign company founded by a Chinese immigrant who would not have founded an American company if Silicon Valley was anti-foreigner (this is getting too meta for me).

Let us pay a little attention to the financiers. Here is a quote from the TechCabal story

Beyond the fact that the round is skewed towards Swedish Kinnevik’s lead, we could not ascertain the structure of the deal, nor the resulting valuation. Preceding cash injections saw $3.5 million seed (Kinnevik) and $10 million series A (Kinnevik, Naspers).

Kinnevik controls (technically you could argue) both Jumia and Konga and practically own ecommerce in Nigeria. That my friends is the bigger story.

Which brings me to a prediction for the next year I missed in my post yesterday. Konga and Jumia Nigeria will become one and will be run by Simdul Shagaya. With the co founders of Jumia rumored to have left, I do not think it is that far fetched.

PS. Let me introduce you to Cristina Stenbeck. The boss at Kinnevik. The most powerful person in the African Internet space. She is 36 years old. *bows*

For the coming year, here are my predictions it is a combination of positives and negatives. Nothing outlandish as we are predicting only one year out.

Payments solved: Nigerian tech companies will have their payment problems solved (most likely NOT by a Nigerian company). i.e stored card data will enable reoccurring billing which is the lifeblood of software startups. Paypal will arrive. Finally.

Major exit: There will be a massive exit for a Nigerian startup (not Rocket). Massive meaning over $80million. I have no idea of the space.

Major casualty: Likewise, there will be a massive failure of a funded company. A bankrupt startup or a founder kicked out of his/her company. Lots of media startups will close their doors.

Tech will go mainstream: Tech founders will get the recognition that has been missing. Red carpets and magazine covers for our sector will become commonplace.

International companies will come: Facebook, Twitter et al will set up proper shop in Nigeria. Google will go beyond their sales cubicle. Hello Deezer!

Cash will flow in: There will be a lot of inbound money invested in the technology space. $100million at least will come in. The low amount is because of the uncertainty of the Nigerian elections coming up

Rocket will Exit Africa: They are done with here. But they’ll be dusted as they sell off everything they have and move on to other things.

Corporate venturing will take off: MTN has shown the way. We love to copy. Do not shut down that your streaming app just yet, the buyers are looking out.

Incubator time: Many commercial play incubators will begin to sprout. There will be at least one foreign one that will be for Nigerian startups (as against the Rocket model)

Tech + Politics: Technology and social media will dominate the political landscape. This is fairly obvious but it will be on another level far beyond SMS broadcasts